Everyone Hates VCs After the SVB Collapse

Paris Marx: Jacob, welcome back to Tech Won’t Save Us!

Jacob Silverman: Thanks for having me.

PM: Absolutely. It’s always fantastic to have you on the show to talk about anything related to the tech industry with you. And with the collapse of Silicon Valley Bank, I thought it would be a great time to have you on — not only to discuss what happened with this bank, but also what it tells us about the broader venture capital industry and the powerful people in the tech industry itself. Especially, after our last conversation where we dug into David Sacks and a lot of these people, their histories, their backgrounds, and what we should be learning from that. It will be a really good conversation to follow on to what we were talking about before. I wanted to start with getting the facts on what actually happened. Let’s start at the most basic kind of level. What was Silicon Valley Bank? And why did so many people in the tech industry want to have accounts with that particular bank?

JS: It was a local bank, in some sense. But it was a pretty big one — the 16th largest bank in the US, I believe. We don’t have as many banks as we used to. Since 2008, there’s been a lot of consolidation. It’s certainly catered towards the market in its title, Silicon Valley. The bank started in the early eighties but had grown with the tech industry, especially with the startup-ecosystem — to use an annoying phrase — over the last, say, 30-40 years. There’s an interesting little video going around of Jason Calacanis, who we can talk about, but he was big in all this, or wants to think he was. He’s on some sort of panel; it’s very chummy. He’s clearly in a comfortable environment and he starts talking about — this was within the last few years, I think — how when he wanted to buy a new house, Silicon Valley Bank sent eight people over to see him. He was so flattered by the attention and that sort of thing.

That’s just one anecdote, but it seems to be kind of the modus operandi of the bank, which is that they really cater towards Silicon Valley moguls, and the would-be moguls at startups. That was everything from when you raised a big round of funding, you would want to put it in Silicon Valley Bank because supposedly they would cater to you. Or if you were a rich guy whose companies kept money in Silicon Valley Bank, like Jason Calacanis, then they would move heaven and earth to get you a nice mortgage and make you feel good about it. Even their offices — they have them all over the country, but they’re supposed to be pretty luxe for a bank, and they had one on Sand Hill Road, the epicenter of Silicon Valley venture capital. I think it’s worth seeing it as the house bank of Silicon Valley, both materially significant and really culturally central too.

PM: That makes a lot of sense. I certainly remember the Calacanis video, and I’ll put a link in the show notes for people who want to check that out to see how gushing he was about this bank, and ow he was describing how, because he was a rich guy, these bankers really went after him, wanted to make sure that they had his business, wanted to make sure that he felt like he was treated well. Of course, one of the things that I’ve read since this bank went down is that they will go after people like Calacanis, and give him all of this preferential treatment because then, when he funds a new company, or startup, the recommendation is going to be: Okay, you’re getting this money from me, now, you should go open an account at Silicon Valley Bank. There was a pipeline from a lot of these powerful venture capitalists in the industry to send all these companies into the bank and get them to open their accounts there. They, of course, also made it easy for a startup that might not really have all their ducks in a row to still get a bank account, credit cards and all those sorts of things.

JS: There is that pipeline, exactly, as you said. I mean, there’s the term portfolio companies. So if you’re a venture capitalist, you have portfolio companies that you’ve invested in, that’s who you’ve given money to. Everyone, apparently, told their portfolio companies to put their money in Silicon Valley Bank. And then in the last couple of weeks, everyone told them to pull them out. There was reporting specifically that Founders Fund, Peter Thiel’s VC fund, was telling its portfolio companies: Take your money out. It was this network, the social and business pipeline.

Per what you actually just said at the end, maybe you were you were slightly referring to this. But there’s also another screenshot going around on Twitter of some startup founder complaining that JPMorgan Chase is closing his bank account because he has no physical address for his business. Someone says: Well, that’s standard in banking, actually. Then he says: Well, Silicon Valley Bank didn’t need one for seven years. I mean, it needs to be verified but it seems to be the kind of thing that was going on here, where it’s like: No address? No problem! This is startup land; we’ll take your money. There are a lot of ways in which they seemed sloppy with all that money that they brought in when interest rates were low in the last few years and there was just tons of outside capital flowing in.

PM: That sounds about right. So, you discussed there how the bank and a lot of these people pulled money out of the bank. The reporting I saw suggested that people in the Valley very quickly pulled about $42 billion out of Silicon Valley Bank ahead of March 10th, when the bank finally failed. As you say, it went from being the 16th largest bank in the United States to the second largest ever bank failure in the United States. So what actually happened to cause this bank to collapse in such a spectacular way?

JS: I think some of that is still being figured out in some ways, but there’s some core things that people have pointed to, and certainly banking experts who know more than I do about that side of things. But for one thing, it seems the bank — like a lot of companies, I’d say, but certainly in the tech world — didn’t really account for: Hey, interest rates are going to arise, and free money isn’t going to be here forever. This was kind of the experience for the last 10+ years, or really since 2008, which is that it was really easy to borrow money or the Federal Government was bailing everyone out at every turn, and you didn’t have to pay a lot of interest on loans.

The bank had a lot of money coming in. Apparently, usually they would buy into more short-term securities and financial products. Then they decide: Hey, we can squeeze out a little more profit if we make a big bet on long-term bonds. This was one of the big mistakes that they made. I think they didn’t have really many positions hedging against this, or a sense of risk management, which is something that you hear a lot these days in Silicon Valley and in crypto. The little corner I’ve been covering lately is just a complete lack of risk management. So what happened was, I think, it was a combination of some bad bets that they made when interest rates were low and lack of diversification of their business. They weren’t making a lot of loans. They were making loans to the wine industry — that was a side program for them.

They had this high net worth individual business where the Jason Calacanis’s of the world could borrow money or get help with various things in their financial lives. Anyway, so you have these long-term bonds, interest rates go up, things start going south in the wider tech economy. Then in tech banking, I would argue, even before Silvergate, and some of these companies start pulling out. Their stock starts plummeting; they need money; they need to be more liquid. They sell some of those long-term bonds at a huge loss of almost $2 billion. That’s really when things start unraveling, but a bank doesn’t necessarily have all of its deposits on hand — there’s something called fractional banking. But of course, they hope to be able to get liquid quickly when depositors start a run on the bank, but it’s very hard to simply come up with $70 billion, or whatever the case might be.

PM: Absolutely. You mentioned Silvergate there, I’ll come back to that in just a second. But as you’re discussing, Silicon Valley Bank put money into these long-term investments. One of the things that I read was that they weren’t really reassessing, or reevaluating the value of those investments as interest rates were changing, and the market was changing. So there was this immediate change as it sold them at a loss that spooked a lot of people, as it needed to come up with capital. You mentioned before that there are stories that Peter Thiel told Founders Fund, and the portfolio companies of Founders Fund, his venture capital firm, to basically pull their money out of Silicon Valley Bank. There are stories that a number of venture capitalists were doing something like this. Can we pin this on Peter Thiel, or is this a larger phenomenon that’s going on there?

JS: As tempting as it is, I wouldn’t solely pin it on him, but he is obviously influential. He also is more publicly known than, honestly, some guys who are probably richer and more influential, at least, in tech. But still, of course, he’s a powerful force and if he starts telling his companies to pull out, I’m sure that spreads. The reporting and the open source intel gathering we might do of all these people screaming their heads off on Twitter and elsewhere, seems to indicate that this was a social hysteria in some ways. The bank had problems and, I mean, bank runs seem to follow some sliver of bad news, perhaps. You can point to some other things like the bank seems to have known for a while they had some issues.

There was this meeting of forty CFOs with the bank of big customers. Perhaps they started getting a whiff of things there. Executives were selling their shares before all this, bank executives. I wouldn’t say it’s just Founders Fund or Peter Thiel, but it was this very social thing of going through WhatsApp groups and Slack chats, stuff like that. Obviously, publicly on Twitter and people watching the market very closely too once the stock started falling. In that way it really reveals a lot about the VCs and how they operate. That’s something we could certainly talk about. But I think that that social and network component of it, it was a hysteria in some ways, an old fashioned like: Let’s all lose our minds over the same thing and not really think level-headed, then pull our money out as fast as we can. In a lot of ways that’s not that different than a 19th century small town bank run.

PM: Absolutely, the bank had problems, but the speed with which this information and the signals to sell went around really made it worse and made it more difficult for them to respond and be able to figure something out as all these people were pulling their deposits and moving them to other banks. Another thing that came up as well, is that the CEO of this bank was pushing for deregulation after the 2008, I believe it was called, the Dodd-Frank laws in the United States that put some more requirements on a lot of banks.

Of course, Silicon Valley Bank was growing through the 2010s, as you had all of these tech companies that were benefiting from the low interest rate environment. The CEO of Silicon Valley Bank was pushing Congress to reduce the restrictions, especially on banks that had holdings below a certain amount of money, and under the Trump Administration, those regulations were ultimately passed, which meant that Silicon Valley Bank didn’t have the scrutiny and the oversight that probably could have prevented something like this.

JS: There are a lot of boxes to check. There is like risk taking by the bank, there is perhaps a lack of oversight, and a deliberate undermining of existing regulations under the Trump administration, which was heavily lobbied for by Silicon Valley Bank. If you want to lay blame, there are many factors and institutions and people you can point to. Obviously, the woke thing is ridiculous, but besides that, yes, there’s definitely blame to go around. The head of the Bank was part of the San Francisco Fed — there’s just the typical forms of corruption, or revolving door politics, undermining of regulation, and arrogance on behalf of the holders of capital, and then bad decision making and other things like that.

I think some of the details maybe are particular to VCs and to Silicon Valley and how they bank and how they conduct their finance. One thing I do hear some people saying is: Why are they all over the FDIC limit? While some banks do operate that way, or are cater towards those accounts from my understanding, there are what are called treasury management programs, and you can have an experienced CFO or a bank, manage your money so that you don’t have $15 million in a FDIC account with $250,000 insurance threshold. There are these things called cash sweep accounts, which I’ve been learning about in recent weeks. It’s a commonly offered product in this world where basically, if you have millions of dollars and you’re some corporate entity, a bank or some sort of financial custodian will insure that money and spread it among FDIC insured accounts.

There are ways to handle this stuff. I do wonder what else was going on there? Why weren’t they doing — what seem at least from my understanding to be — pretty routine, potential programs or mitigation efforts? Why weren’t they doing that stuff? Obviously, I think that contributes to the crazy call for bailouts and the all-caps tweets by Jason Calacanis, and the Armageddon predicted by David Sacks, and Joe Lonsdale doing promoted tweets asking for a bailout, all this stuff. There seemed to be a lot of money on the table that they could lose if the FDIC did its traditional $250,000 limit. People steeped in the regulatory sphere could talk about whether that’s a good thing, to go above that limit, but these people were scared that their model was threatened and unraveling. Also, maybe they’d been pretty irresponsible by not having these basic cash management programs to ensure they wouldn’t be in such jeopardy.

PM: No, definitely. We’ll come back to the VCs in just a second, but it was shocking to see was something like 90% of the deposits at Silicon Valley Bank were uninsured. Meaning that, as you’re saying, they were over the Federal Deposit Insurance Corporation’s $250,000 limit that they’ll cover on a bank account. You had all these accounts with massive balances and Silicon Valley Bank wasn’t doing any of the usual tactics that some of these other banks would be doing to ensure tha you’re reducing the risk of having so many uninsured deposits.

JS: I believe it’s the number two bank in the country in terms of percentage of uninsured deposits. The other one is one of the Mellon Banks in New York. It clearly is also an unusual bank in some ways. I think that has to be accounted for, especially when these people are predicting wider collapse. I mean, obviously, there’s some stuff going on beyond Silicon Valley Bank, but it also had its own unique model and its own unique recklessness, perhaps.

PM: Definitely! Before we get to the response and what regulators did to this, and of course, how the VCs reacted, I also wanted to point out that it’s not just Silicon Valley Bank that has been having some trouble recently. In the news has also been Silvergate and Signature Bank. Do you want to give us a bit of information on what was going on with them and how they fit into this bigger picture?

JS: Yes, Silvergate and Signature were really essential to the crypto banking ecosystem — sorry, it’s that ecosystem word again — but crypto companies really need fiat on-ramps and off-amps. Every company needs banking access to the mainstream financial system. But that’s a difficult thing, sometimes, for crypto companies, for reasons you might guess. These banks really catered to them. Silvergate, at one point — I don’t know the exact numbers for Signature — but Silvergate was really a crypto focused bank. Signature had a larger purview and then brought in crypto business. Signature one point had something like 1600 crypto clients. They were all in thes, what I call, a bank within a bank. They were these networks that the settlement platforms that both these banks ran. One was called the Silvergate Exchange Network and one was called Signet, and one belonged to each bank.

What my understanding, at least, I think this is one area where we need to learn more, or maybe I’ll try to write an article or something but it seemed to act as almost like an internal marketplace within each bank, where your 1600 crypto clients could do a lot of business with eachother, and then if they need to interface with the mainstream banking system that would then become Silvergate money or Signature money, and then go to the wider banking system. I mean, that leaves potential for money laundering it leaves potential for not being able to track what’s going on. That was one issue. It’s been cited in some lawsuits. I think you’re going to see it cited in potential government filings, that these private settlement platforms made it a lot more opaque what these banks were doing.

Silvergate, I think, went bankrupt more the old-fashioned way because a lot of its customers did and it worked heavilty with FTX; it was famously caught up in that. There is a potentially a lot of liability for these banks if authorities determined that they facilitated FTX’s fraud, for example, or some of these other potential frauds like Celsius. Signature is a little different because it’s New York-based; it’s a little bigger. It wasn’t really a crypto-focused bank, but had has a big crypto practice. Barney Frank was famously involved with the bank and paid off by them, very shamefully, I would say. There is a meme or an idea going around in crypto circles that Signature has been unfairly targeted and that the bank was solvent and didn’t really need to be seized by the government.

From my understanding, the reasons at least as expressed so far behind the seizure, are both the bank seems to be financially in trouble, but also, perhaps some things related to its crypto business and potential criminal investigations. I don’t know — I don’t want to excuse the authorities automatically, but there’s a lot to choose from here. I think in the crypto world there’s this assumption, or even in the VC world, that this stuff all began yesterday. I think that’s what we need to take away from the Silvergate and the Signature stuff. It didn’t just begin with Silicon Valley Bank a week or two ago. It was these other banks and before that, it was all these crypto companies that were failing or that were outright frauds, including Celsius, 3AC (Three Arrows Capital), and Terra. We’re actually in the larger picture seeing a breakdown in banking, perhaps, because VCs made a lot of bad bets and some of these companies were outright criminal operations. The effects are starting to radiate through the VC and financial world.

PM: That’s a fascinating way to put it and to see this in a much bigger picture and to link it to everything else that has been going on in the past 12 months or so. As these companies have been continually collapsing and larger dominoes seem to be constantly falling. When we look at Silvergate and Signature and how they were key links for the crypto ecosystem to move into the regular banking system, the fiat money world, does their collapse create further problems for crypto companies, even after we’ve seen all the collapses of companies like FTX and things like that, too?

JS: Absolutely, these are slow motion dominoes for crypto in some ways, or certainly, a lot happens all at once and then there’s maybe a couple of weeks of quiet. But the FTX story certainly isn’t over and I think there are going to be more indictments, probably more people pleading guilty from the FTX world. But also, everyone did business with FTX and Alameda and there are potentially other companies involved, and whether in a criminal sense or just financially dependent. They had all these hedge funds and had their assets on FTX. I interviewed Kevin O’Leary, the Shark Tank guy, Mr. Wonderful. He had his endorsement money on FTX — I think it was mostly crypto, millions in crypto. Now he’s suing to get it back. It takes time, sometimes for the second and third order effects to be felt, or to really find out who owes whom. Some people go bankrupt quicker than others. Some people can arrange emergency financing and some can’t. Those kinds of things take time. I’m not saying it’s all attributed to FTX, but that is, of course, the biggest that we’ve seen so far.

Then in terms of what they can do without these fiat ramps, not much, I think. It’s all going offshore. You saw these huge printings of stable coins in the last few weeks, Tether, this other one, TUSD. Binance made a billion dollars purchase worth of Ethereum and Bitcoin, so it seems like they’re pumping the market with stable coins. Then even Coinbase, which is supposed to be the regulated, above board US entity, even though it’s always suing the government, and it’s always losing money. They’re talking about moving offshore. Then there’s a general talk of: Hey, we might have to do our banking offshore by a lot of these companies, or perhaps in some friendly European jurisdictions. So it’s a big problem, I think.

The crypto industry will say it’s just a blip, or they’ll say that there is a government conspiracy against them. I actually think they’re right. I think the Biden administration, in some sense, has a larger strategy. I don’t know how coherent it is, but they don’t want this stability in the banking system. That’s where the industry disagrees, I guess, but they don’t think that they are a source of instability, but just look at the last year. It doesn’t matter that crypto has rallied a bit in the last few weeks, like the last year has been one of disaster. So the Fed and other supposedly responsible custodians of the capitalist and Wall Street order, they want to push crypto out of the way, and say: You’ve had your chance; you’ve done some damage, go to the Caribbean!

PM: [laughs] Jacob, I think you’ve taken the complete wrong lesson from all of this, according to Balaji Srinivasan. All these collapses mean we just need to put all of our money into Bitcoin!

JS: I mean, it’s insane. I was doing some media stuff the other day, and someone was asking about this short-term rally, right now, of Bitcoin. The bag holders get so excited. It’s like: Dude, you’ve been through this before and I haven’t even been covering this as long as you, don’t you know? I mean, of course, their money is on the line and they always want to say that the next bull run is just around the corner or something like that. And Balaji is a special case because he’s basically a right-wing extremist. But one thing we’ve seen is that we’ve been through this and the retail numbers are not coming back. People have lost their money. There are still some loud names out there, but the crypto hasn’t proven itself. Where’s the use case? Why would I want to do that except for the crazy speculative promises of a Balaji-type guy?

PM: Exactly. Obviously, I completely agree with you. You’re speaking to friends here [laughs]. Before we get into the broader venture capital response to this. Just a final question on the whole Silicon Valley collapse and the Signature collapse as well. The Fed Jerome Powell, Treasury Secretary Janet Yellen and the FDIC, all came out within days of the Silicon Valley Bank collapse and said that there was all this concern around uninsured deposits and things like that. But depositors will be getting their money back and they will set up the facilities to ensure that that is able to happen, so people wouldn’t be losing money. How does that actually work? Is this a bailout? What does this mean for the people who had their money in Silicon Valley Bank?

JS: I believe it comes from an FDIC fund that comes from fees assessed on the banking industry. But there is a lot of talk about whether it constitutes a bailout. I think most informed minds say: Look, it is. Certainly anyone from Joe Weisenthal, to David Dayen, some of those folks, or Francesca Coppola, who I like. The fees or the costs do get passed down to consumers or taxpayers in some way, and it is a guarantee that your money will be there, even if you left it in funds, in accounts over the FDIC threshold, knowing that that was a risk. Even if your banker buddies took huge risks with that money, or acted irresponsibly, in general. It has to sound like a bailout to me or some kind of saving measure. Where the cost is ultimately born, that stuff usually flows downhill, of course. As to why it does, arguably, calm markets, as they say. It seems like a very neoliberal response. It is a rhetorical victory for these guys who call themselves the innovation class. But I think it was also just seen as a short-term risk, probably, that the Biden administration didn’t want to take.

PM: Absolutely. Even though they saved this bank from total collapse, they’re still looking at what they’re going to do with it — if they’re going to sell it to some bigger bank and what have you. But we can still see that there are consequences coming of that. We just saw the other day that Credit Suisse is being sold to UBS, I believe. So there’s still a contagion effect that is going on here.

JS: One thing, just real quick worth noting, and maybe I didn’t answer before. Basically, people are getting their money back, shareholders in the bank and the leadership of the bank, they’re basically gone or wiped out. The CEO will be fine because he sold all the stock. The billionaire depositors, the head of VC funds, will be made whole and there will be very little interruption. There might be some payroll missed here or there. Maybe some companies will experience real financial distress, but mostly the FDIC has done this before. Maybe not always at this scale. They set up a new banking entity and there’s almost no interruption from Friday to Monday — last Friday to Monday of this week, I think or when this originally happened — and business proceeds. It’s not like a lot of money is going to disappear in, say, the FTX bankruptcy for example, where they’re still looking for money and customers won’t be made whole for a long time, if ever.

So that’s also what gets at me with some of the belly aching from some of these people. They got their bailout and they got really quick with minimal interruption. As for the Credit Suisse stuff, I think it’s important to keep a broader eye on these things like First Republic Bank that people are talking about. It seems to have problems and they’re looking for a buyer. The big banks are gonna get bigger from this, it’s unfortunate. I’ve had people tell me, just from various lines of work, one of them was a legal firm, but they moved their accounts from First Republic to JP Morgan, one of the biggies. So you’re going to see more of that thing. But Credit Suisse has had problems for a long time, as anyone could tell you, a lot of these banks are corrupt in a certain way like Deutsche Bank, which has been on the ropes for a long time. So my worry is that this, of course, gets politicized and used by the wrong people to either push Bitcoin maximalism or push the entitled VC attitude or choose your ideology. I suppose everyone can find one in here.

PM: It’s an important clarification to make, that this money isn’t gone, that people had access to it again, very quickly. The biggest disruption is that some of these people are switching around their banking relationships, maybe opening accounts with JP Morgan and some other banks. As you say, with the collapse of Silicon Valley Bank being still the 16th largest, but one of the smaller banks in the United States is, one of the effects is scaring some people off of more regional banks and getting them to go with the bigger banking players making them even bigger, and further encouraging that idea that there’ll be too big to fail.

But you mentioned there the venture capitalists and we’ve talked about them a bit so far, but I think it’s important to dig into their actual response to this and what that tells us about them and the broader tech industry. So after Silicon Valley Bank collapsed, David Sacks was tweeting: Where’s Powell? Where is Yellen? “STOP THIS CRISIS NOW,” in all caps. Announced that all depositors will be safe because, as we’ve been saying, there were a lot of uninsured deposits at this bank.

Jason Calacanis, meanwhile, was sending out a number of tweets in all caps. One of them saying: “On Monday one hundred thousand Americans will be lined up at their regional bank demanding their money. Most will not get it. This went from Silicon Valley insiders on Thursday to the middle-class on Saturday. Mainstreet finds out Monday.” And, really a lot of people saw these tweets as a warning from the Silicon Valley venture capitalists. Like: Save us, or we’ll ensure that there’ll be much bigger consequences. So, what do you make of this response that people, like Sachs and Calacanis, and many other of the VC class on Twitter had to this bank collapse?

JS: I’ve been pretty clear on Twitter that I found some of that despicable and just shameless and embarrassing for them, I think. But they got what they wanted! Even when I thought: Wow, this might work against you. This is so alienating and certainly some policymakers are seeing this, even if they’re not just reacting to tweets. But it worked. I think it’s very frustrating. It is revealing and sometimes it’s good to sort of have the scrim of respectability ripped away. Then you see what these people were actually like, not that we really had to wonder with some of them. It’s worth noting, perhaps, that Silicon Valley Bank actually had a lot of private equity money. It had some other businesses, but the Silicon Valley VCs were a huge part of it and probably the biggest, besides private equity. They’re certainly the most publicly visible.

There’s been a larger cultural or sort of social media shift in recent years where the VCs have tried to celebritize themselves a bit. I mean, there was a period when VCs were celebrated, perhaps, as captains of industry unto themselves, visionaries, picking out the next winners and seeing into the future — however you want to pump them up, as those masculine tech visionaries. But their arrival on the social media scene, especially more in the last couple years, and very much so since Musk took over Twitter and established his war room of David Sacks and Jason Calacanis and some others. All of whom are voluble Twitter users, things have really changed. At least in the circles I run in, people don’t seem to like these guys.

There’s been a lot of attention about them and again, it is useful in some ways, but the entitlement does seem off the charts. It is very alienating. They don’t really apologize for anything they say. They’re sore winners where they still complain, or say: This should have happened sooner. There was a tweet like that from David Sacks. David Sacks is a top DeSantis supporter. I believe he’s going to have a position on his fundraising committee or the financial side of his 2024 presidential campaign. He’s already donated a lot of money to to DeSantis. All these guys are pretty much in on DeSantis. Calacanis, possibly Biden and so there’s a very political backdrop here.

Of course, they’re not goning to be happy about getting what they want. They’re going to still complain about the Biden administration, and bellyache their way through this. And complain that we all made fun of them and yelled at them over the last few days, even though, frankly, they deserved it [laughs]. That’s how I feel about the social media and cultural playing field. I think being a little more serious and seeing it more broadly — and I asked some of these questions on Twitter — it might be a wake-up call for some of these guys. I mean, some of them have said, like: Oh, this is radicalizing for us because you all hate us. But maybe ask why? Why do a lot of people seem to resent VCs? It’s pretty simple, they’re arrogant. The apps and other products they make — when they don’t fail 90% of the time — don’t seem necessarily that useful. The main invention in the last 10 years is probably undermining the labor market through the gig economy.

Now that they’re on Twitter, and we can see how they live, they’re all kind of jerks and not very personable. They think that they’re the “innovator classes,” as they call themselves, and the visionaries to lead the new capitalist order. Of course, now, a lot of them are moving to the right and getting very politically active. So of course a lot of people don’t like them. Yes, they have a constituency, just as Elon Musk does. But there’s no humility there or even just questioning: Why might you guys be upset with this? Or even like a strategic questioning of: Maybe we should think about why we’re hated.

That’s one thing I did say on Twitter — I’m over generalizing, perhaps — but people in Hollywood and finance, a lot of them do have what I call the “requisite cynicism” about what they do. They don’t necessarily have the changing the world attitude. You can find exceptions, or there’s certainly people in Hollywood are so full of themselves, and think it’s the most important thing in the world. There are a lot of shitty people in both of these industries. But they might not tell you: Hey, private equity is so important. Or they might say that it generates wealth or something like that. People in tech still think that they have that sense of manifest destiny and that you should be grateful. So that’s where the cultural divide is ultimately rearing its head here.

PM: I think that’s a very important point and I would just say that, just to remind people, if they do want to know more about the politics of some of these people, they can go back to the last episode that we recorded together, where we really dug into that — especially on David Sacks and some of these other folks. Just to build on what you were saying there. One of the things that stood out to me from what these venture capitalists were tweeting about in the immediate aftermath of the Silicon Valley Bank collapse — beside wanting to save all their deposits and whatnot — was that there was a real narrative focus on making this seem like their desire to save the bank and save the deposits in the bank was not about them. The rich people of Silicon Valley, the venture capitalists, the David Sacks and Jason Calacanis’s of the world.

Mark Cuban was tweeting, and I quote here: “The tragedy of SVB is that it’s not the wealthy taking the hit. It’s the thousands of companies who borrowed from SVB and were required to keep their cash in SVB. Those entrepreneurs and their employees and vendors are feeling the pain.” So there was a real focus on saying: This is not about us rich people who are getting hit — this is about the workers and we need the government to step in to save all these deposits so that workers can get their paychecks. Then there was also an attempt to frame it as though this is really not a venture capitalist problem.

David Sacks tweeted: “VCs who passed on a warning to their portfolio companies did their duty to serve their founders. Nothing to be ashamed of.” What do you make of how they were really trying to frame this? Obviously, a lot of people in tech are very skilled PR people. That’s part of the reason why they’ve been seen so positively, I guess over the past decade, besides their companies gaining immense value. But what do you make of that response that they had?

JS: It’s fake populism of the kind that we’ve seen from the wealthy-right in recent years, in one form or another. Think of the app makers! For one thing, of course, a lot of it was born out of self-interest and a certain amount of recklessness. I also think that these guys think that they’re the center of the world and the companies they invest and support are truly — I think they do believe this — the center of the economy and the most important thing that one can be doing. Besides the fact that they need to make enormous returns on them. In that way, I find it disturbing and, of course, very selective too because the tech industry just laid off thousands of employees and almost celebrate itself for doing it.A lot of CEOs have said Elon is doing a good job by cutting Twitter down to size and showing the company can still run on a skeleton crew, which it can’t really, but it is.

So, workers rights don’t ever really figure in the Silicon Valley calculus. So when I’m hearing them now, even about six figure salaried employees, it sounds like crocodile tears and nonsense. I do think it’s a great opportunity to raise these larger questions about: Well, what is VC good for? And do we want it to play the role that it does or the role that it thinks it does in innovation and investing in new companies and all that sort of thing? I don’t need to recapitulate how the US Federal Government — in some cases, the DoD — has been essential to so many tech advances or personal tech advances. But we know that narrative, but maybe there’s a reason to go back to that and say: The guys who are VCs, they have a lot of money at their disposal, but they’re not necessarily good at what they do, or the most efficient at what they do. Perhaps, we shouldn’t be happy with how they do it and the politics and political economy they’ve produced over the last twenty years. I think it has been pretty harmful.

PM: I’m happy you brought up that point about the workers and how they are pretending to be supportive of these workers in the industry, even at the same time as they’ve been supporting Elon Musk in cutting workers at Twitter and looking at broader layoffs across the industry. One of the things that really came up to me, as I was looking at some of what these people were saying, especially, as you say, there’s been this turn against the venture capitalists. It’s been a very revealing moment for them. I saw Bill Ackman was saying: The failure of Silicon Valley Bank could “destroy an important long-term driver of the economy.” The head of Y Combinator, Garry Tan, was saying that “If the government doesn’t step in, a whole generation of startups will be wiped off the planet.”

Even Larry Summers, the economist, was saying that there’ll be huge consequences for the US innovation system if this bank was allowed to collapse, and all the depositors weren’t protected. But then as we’re thinking about the role of the venture capitalists and what they have done, what the industry as a whole has done, and the companies that they have funded over the past decade or so, maybe it doesn’t seem so bad if there’s a hit to that innovation economy or a hit to some of these startups to force this industry, and these people at the top of it, to really reconsider how this all works.

JS: It does present such a stark contrast in these last couple of weeks — and again I try not to go too much from my own internet bubble — but the level of self-regard, it seems among these VCs who, at least, claim and some of them really do seem to believe that they are somehow inventing the future and part of this rogue, innovator class. Then most people who, I think, don’t. I mean, you could also just look at what the industry has produced in the last ten years. I think I said something about gig economics being the main innovation. Sixty percent or more of Americans live paycheck to paycheck. I think most people’s needs are really material and also social and political. Silicon Valley has just been unable to solve those things from purely technological and economic approach. Silicon Valley has always tried to see itself as separate from or above politics somehow.

When people don’t have healthcare, you can’t really ‘inno-vent’ your way out of that. Which is why also relatedly I find it offensive or obscene that we see these life extension startups from Thiel or Sam Altman, or something like that, or at least invested in by them. Where most people are just struggling to get everyday healthcare. There is an insular, coddled life that a lot of these people live, but there is a great cultural gap and economic and material gap between how they live and how most of us live. You can even just look at San Francisco, too. Of course, it has a lot of problems and the social problems and poverty are very visible on the street. The generalized response from the VC class has been disgust, or flight or anger or any number of things, and not any kind of self-examination and very little sympathy or empathy on display — certainly not as a political policy or program. So I think that’s why I keep going back to this idea, or at least for me, it’s resonant as this stock-taking moment of where do these people stand as a class? As a political and economic force? How different it seems from where most of us are, and from what really the sort of broader public needs.

PM: It seems pretty telling that part of their response was not only: We need to protect all depositors, even all of these uninsured deposits over the $250,000 limit on these bank accounts by really wealthy and powerful people like the venture capitalists — David Sacks, Jason Calacanis, and many others. But then at the same time, like we were talking about in our last conversation, they were also using this as a moment to further play into these culture wars, the right-wing narratives that they’ve been pushing for a really long time. Sorry to be quoting tweets at you in these questions, but David Sacks was saying that we’ve reached a point of political division where it’s fine to root for members of another tribe losing their bank deposits. Then Flo Crivello, who is a founder in the industry in a tweet thread said: “We are having actual honest to god, hammer and sickle communists hating tech and actually wanting our heads on a spike.”

Now I have to admit, I had a bit of a laugh on that one. I was like: Oh, is he describing me? [both laugh] But that’s just to say that all of these powerful people in tech are really losing their minds over the fact that there’s growing criticism of the industry, and especially at a moment where their bank collapses because they’ve engineered this bank run, people are calling attention to the fact that these venture capitalists are really causing a lot of problems, not just in this industry, but in the wider economy. They’re always looking for ways to justify their actions to say: We are the ones actually being targeted in all of this. Even as they’re the ones perpetrating a lot of these harms that are existing in society.

JS: I mean, certainly, the victimization play seems to be the go-to move by the right-wing in recent years — also, by people who are in elite and moneyed and political classes who are not victims. But is a little hard to take seriously and a lot of it does seem in bad faith. I would hope that some of these folks, even as they’re horrified by the anti-tech sentiment they see or that people are “rooting for them to fail,” as one guy I saw said, they may be asked like: Well, why might these people hate us? There are practical strategic questions there too. Even look at crypto, crypto-mass adoption is not happening, retail trading and interest is down, and has been down for over a year. I don’t need to list everything that’s happened over the last year.

But instead, what I see a lot in crypto or people still in the industry and peddling it and true believers is that the rest of us just don’t get it yet, or there’s still this sense of inevitability. But I don’t know. Maybe this is just a bit of a consumer dead-end that the industry wandered into. It doesn’t mean no one will be using it, but it’s not like the next billion person tech, app or sector. But there isn’t that self-reflection there. I made a joke on Twitter one day, writing: “Tech can’t fail, it can only be failed. That seems to be the attitude with a lot of these guys have, saying: Why don’t you see how important we are and how important we are to larger economy? I think people appreciate their apps and messaging their friends and stuff. But there’s also well-earned cynicism by now and exhaustion with these folks — in the sense that our lives aren’t necessarily getting better.

One of the other tendencies of the last couple of decades — and Matt Christman had a good, little summary of this on Chapo Trap House recently — technologies of surveillance and coercion, as Matt said, are going to be with us for the rest of our lives. People are more wise to that kind of thing too. With the supposed convenience of Silicon Valley has come a lot of downside, a lot of bullshit. The surveillance culture, coercion, economic inequality, gig economy, the wrong people getting rich and accumulating political power. And yes, we have nice phones and slick apps and message our friends, but the scale seem a bit uneven at this point. That’s what I think is coming through here as well.

PM: It’s a bit depressing to think about how many of these surveillance technologies that have been normalized, we just expect that they’re gonna stick around now, but it does feel like we’ve been through this cycle enough times. This cycle of hype of the tech industry and these founders and whatnot are going to change everything and improve so many things about society. Then they’re not able to deliver and whatever kind of bubble they created in whatever part of the tech industry collapses, and then they just move on to the next one again, and they make all these big promises, and whatever, and then it collapses. Then we move to the next thing and on and on and on.

Meanwhile, these venture capitalists are profiting off of each one of these bubbles in most cases, but we’re all, collectively, stuck with the consequences of all these technologies that they’ve loaded onto us. Promising that they’re going to make our lives better when actually, they’re creating new systems of rentier capitalism. They’re further degrading working rights and all these other things. Then they’re just shocked to think that maybe people are finally getting fed up with what they’re trying to sell us

JS: Very much so. Rentier capitalism is the other trend, we should point to in the last couple of decades, which is just rent-seeking intermediaries and forms of extraction from us. There’s some tweets during this whole thing about like: Well, Etsy won’t be able to pay its sellers. It’s like: Okay, I am glad that the average home craftsman can sell something on Etsy, but to act like these platforms who, at this point, are basically rent-seeking intermediaries, are still this thing we should be grateful for as a liberating force is just a little silly. The other thing that you mentioned is just this moving on from hype to hype. Obviously, the the new thing is AI or generative AI, or the seemingly many forms of AI that aren’t even AI that we have.

I think you also indicate something which is that VCs don’t necessarily have to make successful companies to make money and then ride the next wave of capital that flows in. It might not be as easy as it was the last decade with near-zero interest rates, but VCs are generally in the business of risking other people’s money and doing so very confidently, and with little personal risks of themselves or even reputational. That is one thing that I think from a tech critic or journalists perspective, and probably from uninformed consumer perspective might seem a little frustrating. It’s like: We’re just supposed to go along for the ride every time knowing how this plays out. But more than that, we are the test subjects. We’ve seen that physically, quite literally, with self-driving cars, in our neighborhoods. Tesla is obviously not being ready for primetime, in our physical space where we live. Also, the ways in which every site experiments upon us or performs new types of data collection and surveillance and then sells that on to some other party.

I mean, there are endless ways, of course. No matter how many terms of service agreements we implicitly agree to, it’s not what we signed up for. When we talk about socializing the losses of a bank, which is basically what’s happening here in one form or another, I think that’s also another very vivid and more material way that people understand this — that we’re paying for the risk and mistakes of this innovator class that doesn’t really care about us. It’s very easy to see that when these guys are bickering on Twitter and being incredibly obnoxious and begging for money and then get that.

PM: Absolutely. Just to pick up on your point around the founders making money even when the companies they fund don’t make money. Look at Uber, for example, Uber has never really made money, yet, Jason Calacanis, one of his things that made him a lot of money was his early investment in Uber. He made a lot off of that, even though Uber has never profited. If you think about what he’s been saying about needing to protect workers and ensure that Silicon Valley Bank is made whole, so that workers are paid. Well, all the money that he made off that was on making conditions worse for drivers, ensuring that they were exploited and underpaid and all those sorts of things.

You see how these people are making their money and how they have very little ethics and going about these things. I just want to pick up on what you said they are about the low interest rates. Now, obviously, as we’ve been talking about Silicon Valley Bank was hit because its business model was built on these low interest rates, and the expectation that they were going to continue, and its investments were structured in that way as well. But these companies and these venture capitalists got used to a 15-year period where low interest rates were the norm. That was how you built companies based on that expectation, but now that is changing. We’re seeing a lot of troubles across the tech industry, as they try reorient for this new reality of higher interest rates. What do you think this is ultimately going to mean for the tech industry and for the people who have based their entire business models and their entire conception of how they handle creating technology products and companies and startups and all that stuff, based on low interest rates?

JS: It’s a good question — the way you presented it gestures and how big this potentially is. There are ways in which we can’t necessarily predict yet but I think it depends on a couple of things. Well, in general, money won’t be as easy to come by. Some of these venture capitalists are still playing with last year’s funds, or funds that they raised during the lower interest rate environment. One thing I’ve seen in crypto is just that a16z and paradigm still have a fair amount of money to invest because they raise more money during lower interest rate environments. Also, crypto provide this environment where you could get tokens as a VC and then cash out within months rather than cashing out on startup, years later. They had a faster rotation of that cycle.

What might not necessarily lighten or brace the fall or something — there are all these huge sovereign wealth funds. I don’t claim to know how they do their decision making, but Middle Eastern sovereign wealth funds still have unbelievable amounts of money because we’re still burning so many fossil fuels. There might be some shift to try to get more money from the Saudis and Qatar and Singapore, these other sovereign wealth funds. But I think things here in the US will slow down. Probably some startups will deservedly fail, and maybe some funds will close, but I can’t really predict more beyond that. In a way you would hope that it would create some prudence or caution or that maybe there wouldn’t be these vaporware trends of crypto or Web3. There’ll be more substantive pursuits from the tech industry knowing that they have to husband the resources or save their bullets.

Given the kind of leadership we see from them, I don’t think that necessarily will happen. But you do also hear on Twitter or elsewhere from people who are like: Hey, there are still people under the traditional VC model trying to solve hard problems or do more civic-minded things. I still think that’s not a brief for venture capital itself. I think ultimately, what I hope this leads to is that maybe the model can be questioned. It doesn’t mean it has to go away. But it’s weird even that venture capital had a pop culture presence, that people know what this stuff is, or who some VCs are, maybe through movies like “The Social Network.” These people shouldn’t be famous [both laugh].

PM: That sets it up really well for my final question as well, because when I was looking at the response to this, I wrote that this is the opportunity for a further radicalization against the venture capitalists and the tech industry more generally, and the ideas that they’ve been putting out there. During this conversation, you’ve been talking about how the public, more generally, seems to be turning against tech and against these venture capitalists as they learn more and more about them and the impacts that they’ve had on the world around us.

What do you think the future is when we think about the relationship between the tech industry and the public? You said earlier that, and many people listening to the show will remember this, there was obviously a period where looking at the tech industry, it was like they could do no wrong. There was all positive things that was coming out of it; people were really happy to buy into the narratives. But that seems to be really shifting and Silicon Valley Bank and seeing the industry get bailed out in this way, probably further changes those perceptions. What do you think the future of that public perception of the tech industry looks like?

JS: I don’t think they will get the benefit of the doubt or nerd celebrity treatment that allowed them to get for the last couple of decades. You could mark certain milestones or hinge points over last decade, I’d say — certainly, the 2016 election and the general changing attitudes towards Facebook, especially. I think VCs may have to contend with their own entitlement once they start realizing that people don’t revere them by default — that what they do doesn’t seem to be heroic. If they can make an argument for their efficacy and certain necessity in the chain of innovation and company building and technological development, fine.

There’s so much mythmaking around, of course, Silicon Valley, but around venture capital and Sand Hill Road and these networks of people, of men that have seeded these new companies, going back to Shackley and all these other guys. Some of that will persist because a lot of this is very, as we’ve seen during this whole saga, relationship driven. Some of it is: Well, you better keep your money at this bank because I’m investing in you. There are ways in which you keep something going, a form of nepotism almost. The industry will be looking out for itself, the way it always has. The PayPal Mafia will limp on, but I don’t think they’re going to be playing heroes in a movies anytime soon.

PM: There’s a real opportunity. We’ve had this more critical turn toward tech for a while that has focused a bit on the CEOs. But I think it’s interesting now to see if it’s going to shift even further toward pouring more scorn on the venture capitalist in particular, and their role in this whole ecosystem and making so much of this possible. It’s going to be fascinating to see where it goes. Jacob, it’s always great to talk to you about anything to do with the tech industry, to get your insights. Obviously, I’ll be watching to see what you’ll be doing next, what you’ll be writing because I’m always looking forward to what you’re at. Thanks so much for taking the time to chat!

JS: I appreciate it. I love the show, thank you!